Reference no: EM132846517
Question - Barney's Pizza Parlour recently opened for business. The owner wants a cost function estimate to help with future planning. The manager feels that last month's results fairly represent costs over the coming six months. Last month 600 pizzas were sold. From the following information, use account analysis to estimate the firm's cost function for pizzas sold.
Wages for part-time help $2,340
Pizza toppings 180
Pizza dough 240
Store rent 400
Depreciation on furniture and ovens 80
Napkins, paper plates, cups, and straws 75
Liability insurance 100
Advertising 60
Cleaning supplies 15
Manager's salary 1,400
Utilities (electricity and telephone) 110
Soft drink purchases 375
Required -
A. Develop a cost function using the data from the accounting records.
B. Use the cost function to estimate the total costs if 700 pizzas are expected to be sold next month.
C. What assumptions do you make when you estimate this cost function? List two factors that could cause the assumption for variable costs to be incorrect next month.
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